Bon Accord Investments Limited v Viranda Nominees Limited HC Auckland Ap48-Sw02

[2002] NZHC 925

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY AP48-SW02

BETWEEN BON ACCORD INVESTMENTS LIMITED and
PATRICK ANTHONY SHEEHAN
Appellants

AND VIRANDA NOMINEES LIMITED and MORAY INVESTMENTS LIMITED Respondents

Hearing: 19 August 2002

Counsel:
P Napier for Appellants
S P Bryers for Respondents

Judgment: 26 August 2002

(RESERVED) JUDGMENT OF MORRIS J

Solicitors:
Keegan Alexander, PO Box 999, Auckland for Appellants
Elizabeth Robertson, PO Box 25-258, St Heliers, Auckland for Respondents

[1] This is an appeal from a decision of Judge Buckton in which he upheld claims by Moray Investments Limited (“Moray”) that it was induced to enter into a contract to purchase an Albany property from Bon Accord Investments Limited (“Bon Accord”) by the false and misleading conduct and the false misrepresentation of Bon Accord and/or its agent, Mr Sheehan.

Background

[2] The property is a commercial property in Douglas Alexander Parade, Albany. It was owned by Bon Accord. Mr Sheehan is a director of Bon Accord. In mid November 1999 Bon Accord sold the property to Viranda Nominees Limited (“Viranda”) and/or its nominee. Moray was subsequently nominated as the purchaser by Viranda. The property was tenanted. At the time of sale the property was leased to World Wide Beer Club Limited (World Wide Beer). The lease was for a term of six years commencing in March 1999 at a rental of $27,750 plus GST per annum. A director of the company was a Ms Dench, who was associated with a Mr Edwards.

[3] Understandably Moray was concerned to know whether World Wide Beer was a reliable lessee. It intended to pay interest on monies borrowed to make the purchase from the rental received from World Wide Beer. The purchase price of the property was $295,000 and Moray’s borrowings were substantial.

[4] There was provision for the purchaser to conduct “due diligence” and the agreement was subject to Moray giving final approval within 21 days from its signing. The information Moray obtained about the tenants was sparse. It therefore decided to make a request concerning the reliability of World Wide Beer from Bon Accord. It approached Bon Accord’s selling agent. As a result Mr Sheehan provided a letter in the following terms:

“Monday, 6 December 1999

To whom it may concern

We have had a professional relationship with Mrs Jenny Dench as Director and The World Wide Beer Club Ltd from March 1999. A lease was entered into in June 1999 for rental space at 11C Douglas Alexander Parade, Albany.

This lease was negotiated in a productive manner with both tenant and landlord concessions to enable completion of the building and a specification to suit the tenant. We have had a cordial relationship at all times with prompt payment of all charges under the lease. The tenant appears to have settled in with the installation of tenant fittings (curtains, security etc) and indications of normal business transactions with some large stock movements apparent.

The building is kept in clean and tidy condition with no noise pollution and they are mindful and helpful with our continued construction of these premises.

(sgd) P A Sheehan

Director, Bon Accord Investments Ltd”

[5] The letter was accepted by Moray as supporting the reliability of the tenant. The contract of sale was made unconditional and settlement was duly effected on 7 January 2000.

[6] Shortly after settlement World Wide Beer breached the terms of the lease. It failed to make rental payments by automatic payment as was required by the lease; payments by cheque were late with some cheques not being met; body corporate charges and rates were not paid. As a result Moray terminated the lease and re-entered the property on 27 March 2001.

[7] During the course of tidying the property the following letter from Mr Sheehan was found:

“Wednesday, 3 November 1999

Lease on Unit C 11 Douglas Alexander Pde, Albany

Dear Roy Edwards and Jenny Dench

As you are aware your rental holiday on the above lease expires on the 30 November 1999 with the next rental payment due 1 December 1999. We ask that the rental payment be direct debited to:

$2,600.87 National Bank Milford a/c 060 188 0062093 on the 1 December 1999

The good news is the rental has been reduced due to error in measurement of the floor space and we advise that the rental is now 3699 sq ft at $7.50 or $27,742.50 plus GST or a monthly payment of $2,600.87.

We have also become aware of your past tenancy record which does not sit easily with us. We wish you the best of luck with your venture but advise that no latitude will be given on the late or non payment of monies due. If any requested payment - ie for rates, body corporate fees or rental is late by more than one business day, I have been instructed to effect immediate eviction. All contents will be moved to the vacant adjoining lot where they will stay one week before removal for tipping.

This is the only request to be offered for rental payment. Request for payment on other monies will be by letter/invoice with the prescribed payment date. Please note that one late payment will result in eviction.

We regret this action but obviously disclosure of your position at the outset would have allowed us to negotiate a different outcome.

Yours faithfully

(sgd) Pat Sheehan

Heartland Properties Ltd for Bon Accord Investments Ltd”

[8] The past tenancy record in this letter was a reference to dealings which World Wide Beer or rather its associates, Ms Dench and Mr Edwards, had had with a Mr Cavanagh. Mr Cavanagh claimed he was the director of a company which in 1997 had let premises to another company, with which Ms Dench and Mr Edwards were associated. The company had defaulted. Mr Cavanagh had made inquiries from which he concluded that the people were fraudsters who entered into leases which had an initial rent free period and then decamped when the period ended, leaving rates and other expenses unpaid. He had told Mr Sheehan of this in mid 1999 or thereabouts.

[9] Mr Sheehan acknowledged having spoken to Mr Cavanagh along these lines but disagreed with his contentions. He claimed in evidence before Judge Buckton that Mr Cavanagh told him Mr Edwards was undesirable and a crook and that Mr Cavanagh was having a Court battle with Edwards. Mr Sheehan also claimed that he remained unsure about Mr Cavanagh’s allegations. Nevertheless, he acknowledged writing the letter of 3 November. Mr Sheehan told Judge Buckton that he delivered the letter to Mr Edwards at the leased premises. Mr Edwards had then told him that Mr Cavanagh was aggressive during the time the premises were leased from him and that he had assaulted Ms Dench. Mr Sheehan further said that Mr Edwards told him he vacated the premises on legal advice after the assault. Mr Sheehan also told Judge Buckton he believed Mr Edwards and not Mr Cavanagh’s allegations. Mr Cavanagh gave evidence of the allegations and his conversations with Mr Sheehan.

[10] Moray brought its claim on two grounds. The first cause of action was a claim for misrepresentation under The Contractual Remedies Act 1979. Moray claimed the letter was a representation in general terms that World Wide Beer was a reliable lessee when it fact it was not, this fact being known to Bon Accord through Mr Sheehan. Moray claimed that this representation was false and that it had induced it to enter into the contract because the agreement had remained unconditional until Moray received Mr Sheehan’s letter. Having been asked by Moray for what was in reality a “reference” Moray claimed Bon Accord should have disclosed all it knew of World Wide Beer which could influence Moray’s willingness to purchase the property with World Wide Beer as a longterm landlord and by not doing so it gave a false picture of World Wide Beer’s reliability.

[11] As a second course of action it alleged Bon Accord’s conduct leading to the plaintiffs offering to purchase was misleading and deceptive or was likely to mislead or deceive contrary to s 9 of the Fair Trading Act 1999.

[12] Moray’s defences were essentially:

[a] The contents of the letter of 6 December were neither untrue or misleading;

[b] In respect of the claim under the Contractual Remedies Act the letter in any event did not purport to give a representation as to the reliability of the lessee and at the highest was no more than an expression of opinion;

[c] The reference to Mr Edwards and whatever his part may have been in earlier dealings with Mr Sheehan were irrelevant as he was not a tenant of the Albany property;

[d] In respect of the claim under the Fair Trading Act there was nothing misleading or deceptive in the letter and no factual content of it was untrue or inaccurate.

[13] Essentially therefore the issues before Judge Buckton were:

[i] In December, when the request was made as to the reliability of the tenant, what did Moray want?

[ii] What did they in fact ask for?

[iii] What did they get?

[iv] And most importantly did the information which they were given depict or portray an accurate or inaccurate position?

[14] Judge Buckton discussed both the nature of the claims and the defence raised. He found the following:

(1) Mr Sheehan was an evasive and unconvincing witness.

(2) Mr Sheehan, when he was asked for the reference, knew that Moray considered the reliability of World Wide Beer to be an important factor in deciding whether it would confirm the contract;

(3) Mr Sheehan knew that a company with which both Mr Edwards and Ms Dench were involved had defaulted in the past in circumstances similar to those surrounding the lease to World Wide Beer Limited;

(4) Mr Sheehan knew that Mr Edwards was involved with Ms Dench in the operation of the World Wide Beer.

(5) Moray was induced to enter into the contract by the information supplied in the letter of 6 December;

He found that, while strictly there was no misstatement in the letter, nevertheless, the letter taken as a whole, when considered against the evidence before him and the factual position he found existed at the time the letter was written, contained half truths and thus gave a false impression as to the reliability of World Wide Beer. He found the overall impression conveyed by the letter was that World Wide Beer was a reliable tenant when in fact past dealings showed it was not.

[15] Judge Buckton considered the various authorities referred to him. He accepted that the plaintiffs had proven the three criteria specified in AMP Finance v Heaven (1998) 6 NZBLC 102, 414. He accepted that the letter had to be looked at objectively and he was satisfied when so testing the letter that it was misleading and would have misled any reasonable person in Moray’s position.

[16] Before me Mr Napier repeated the submissions he made before Judge Buckton, namely that there was no representation but merely an expression of opinion; no basis for finding that anything said in the letter was a misrepresentation within s 6 of the Contractual Remedies Act; and no sufficient evidence to justify a finding that Bon Accord’s conduct, through Mr Sheehan, had been misleading and deceptive.

[17] He accepted, as he had before Judge Buckton, that Bon Accord was “in trade”. He also accepted that when the inquiry was made of Bon Accord it was done in order to assess whether the tenant was reliable in its payment of rent

[18] It is settled law that in order to succeed on appeal a party must prove that the conclusion of the trial Judge was not open on the evidence presented before him or that the trial Judge was plainly wrong in the conclusion reached: Rae v International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR 190, 197. An appellate court may also interfere with a judgment if it is satisfied that the trial Judge failed to use, or has palpably misused, his advantage of seeing and hearing the witnesses: Hutton v Palmer [1990] 2 NZLR 260, 268.

[19] Not one of the requirements listed above has been established during the hearing before me. For one, it seems to me that there was ample evidence before Judge Buckton to justify his finding.

[20] Furthermore, far from being plainly wrong, I am satisfied that the Judge’s conclusion was correct. Like Judge Buckton I am satisfied that the contents of the letter were a representation as to the reliability of World Wide Beer as a tenant. I am also satisfied, like Judge Buckton, that in the circumstances the inquiry made of Mr Sheehan placed an obligation on him to reveal information which would affect the decision of Moray to go ahead with this deal. Like Judge Buckton, what he said I view simply as a half truth. By omitting the information to which I have referred, Mr Sheehan gave a less than full and correct impression of the ability and reliability of World Wire Beer to pay rent and by doing so falsely represented the position which he knew was crucial to Bon Accord’s decision whether or not to continue with the deal.

[21] Finally, there was no suggestion, and rightly so, that Judge Buckton palpably misused his advantage of seeing and hearing the witnesses.

[22] I am therefore satisfied that there is no basis upon which this appeal can succeed. It is accordingly dismissed. Costs $1500.00 to the respondents.